Building permits at lowest since '93

A worker checks the flooring framework at a Toll Brothers home under construction in Cary, North Carolina. Jim R. Bounds/Bloomberg News

Housing starts unexpectedly rose due to a jump in work on condominium projects. Economists view permits as a better gauge of the outlook for the housing market, which may hobble the economy as companies from Target Corp to Starbucks Corp cut their forecasts for fourth-quarter growth.

"All of us are ratcheting down our expectations for the bottom of the housing sector and I don't think we're there yet," said David Resler, chief economist at Nomura Securities International Inc in New York.

Construction permits fell 6.6 percent to a 1.178 million pace, the fifth straight decline, the Commerce Department said in Washington. Builders broke ground on 1.229 million homes, up 3 percent from September, led by a 44 percent surge in multifamily work.

The Standard & Poor's builder composite index lost 4 percent to close at 282.02.

Freddie Mac, the second-biggest buyer of US mortgages, posted a record loss and warned it may need additional capital and may cut its dividend. A slump in the value of mortgages reduced core capital, prompting a possible need for more money.

Construction of single-family homes fell 7.3 percent to the lowest since October 1991.

Sales of single-family homes are dropping as potential buyers wait for prices to fall even more and some banks make it more difficult to get mortgages. Demand is declining as fast as construction, preventing builders from trimming inventories and suggesting the real-estate recession will linger into 2008.

'Too much inventory'

"Builders still have too much inventory given the current traffic, and are likely to cut back construction further," said Mark Vitner, senior economist at Wachovia Corp in Charlotte, North Carolina, who forecast a gain in starts. "We'll probably see starts bottom out in the spring or shortly before the summer."

Residential investment subtracted about 1 percentage point from economic growth in the third quarter and may do so again this period, analysts said.

Minneapolis-based Target, the second-largest US discount chain, posted an unexpected decline in quarterly profit. JC Penney Co, Kohl's Corp and other retailers have lowered their profit predictions for the holidays as customers cut back on spending.

Building permits were forecast to drop to a 1.2 million pace, according to the median forecast of 75 economists polled by Bloomberg News, with projections ranging from 1.1 million to 1.324 million. Housing starts were projected to fall to a 1.17 million unit pace, from an originally reported 1.191 million in September. Estimates ranged from 1.05 million to 1.25 million.

Construction of single-family homes dropped to an 884,000 pace, while work on multifamily homes rose to a 345,000 annual rate.

The increase in starts was led by a 21 percent jump in the Midwest. Construction rose 8.5 percent in the Northeast and 5.8 percent in the West. Starts fell 4.6 percent in the South.

Bloomberg News

(China Daily 11/22/2007 page16)